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China to ease share financing rules for property-related firms but outlook bleak

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China to ease share financing rules for property-related firms but outlook bleak
© Reuters. FILE PHOTO: Surveillance cameras are seen near residential buildings under construction in Shanghai, China July 20, 2022. REUTERS/Aly Song

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SHANGHAI/Beijing (Reuters) -Chinese authorities will ease share financing rules for certain real estate-related firms, fuelling hopes of more measures to aid a sector, whose outlook remains bleak due to a mortgage boycott, COVID curbs and a faltering economy.

The China Securities Regulatory Commission (CSRC) will allow certain companies with small property interests to raise money by selling A-shares, but the proceeds cannot be invested in the real estate business, China Securities Journal reported.

For eligible companies, real estate must not be their core business, and should not contribute more than 10% of their profit, according to the article.

China has barred its property firms or property-related firms from financing via the domestic A-share market since end-2018, including both IPOs and additional or follow-up share sales.

CSRC did not immediately respond to a Reuters request for comment.

Analysts said the move is a positive signal, but what the sector needs most is an improvement in home buyer sentiment.

“This is the latest policy gesture… to stabilize the embattled sector, with the focus on striking a balance between reviving the market and defusing contagion risk,” said Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:JLL).

“More time and more help is needed for developers to start to have a positive cash flow. What’s more important is to move forward with sales and that depends on individual home buyers’ expectations and confidence not only on the housing market, but also in the overall economic growth of the country.”

Some companies with real estate-related businesses, including Zhongtian Financial Group Co Ltd, Jinan high-tech development co. ltd and Shenzhen New Nanshan Holding Group Co Ltd, saw their shares surge between 3% and 10% on Friday. Analysts say these companies will likely benefit directly from the rule changes.

They said the move could aid companies which are having difficulty obtaining financing via other channels, and allow them to invest in other areas of the economy.

The property sector, crucial to China’s political and economic stability, slowed sharply in recent months with declines in prices and sales after policymakers imposed strict curbs on borrowing by developers in mid-2020.

China’s central bank and banking regulator have taken steps to ease liquidity pressure in the property sector, where many companies are suffering from slumping investment and sales on top of mountains of debt.

Beijing is also seeking to stabilize markets during the ongoing, politically important Communist Party Congress.

However, there are few signs that the market will bottom out in the near term due to several adverse factors, including authorities’s perseverance with tough anti-COVID restrictions.

“The resolution of China’s property crisis will require the state to shoulder the losses of insolvent developers, Julian Evans-Pritchard, Senior China Economist at Capital Economics, said in a research note on Friday.

Even under an optimistic scenario, “construction activity is unlikely to pick up much before 2024,” he said.

Source: Investing.com

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